It’s that time of year again. Analysts and economists are publishing their economic and stockmarket forecasts for 2015. Ignore them. The predictions will be just as useless this year as in the past.
Market strategists are eternally and unhelpfully overoptimistic. A recent Bloomberg study of forecasts for the year-end level of the S&P 500 showed that as a group, analysts failed to predict a single negative year.
At the start of 2008, even though the subprime crisis had begun, the average forecaster anticipated double-digit gains. Meanwhile, this time last year, the consensus was expecting bond yields to rise, yet one of the key trends of 2014 has been a decline in yields.
Moving to the big picture, it’s a similar story. For example, one of the biggest economic events of 2014 has been the startling collapse in the oil price.
“I cannot find a forecast [from] a year ago that put Brent at $60 a barrel,” says Hamish McRae in the Evening Standard. The “most important influence on the world economy this year went unpredicted”. But that shouldn’t be a surprise – after all, analysts and central bankers missed the Great Recession too.
The problem is that analysts tend to base forecasts on the recent past, or on the average performance of recent years. “No one ever gets fired for predicting that the economy will do about as well as it has always done,” says Henry Blodget on Business Insider.
Similarly, a poll in Barron’s this week shows that the average forecast for the S&P next year is a 10% gain – pretty much what we saw in 2014.